Will The Upcoming NATO Summit Boost ETF Stocks?

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HFA Staff
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NATO Summit

Jane Edmonson, Head of Thematic Strategy at VettaFi and Tom Bailey, Head of Research at HANetf comment below on the upcoming NATO summit.

Jane Edmonson, Head of Thematic Strategy at VettaFi, index provider for the Future of Defence UCITS ETF (NATO):

NATO Leaders are meeting this week in Washington DC for a summit commemorating the 75th Anniversary of NATO. The summit comes at a pivotal momentum in NATO’s history.

The Russian invasion of Ukraine has given NATO a new united focus and resolve, bringing an end the “peace dividend” era and ringing in a new era focused on military readiness. NATO members, including its two newest members Finland and Sweden, are now aligned on modernizing and ramping up its military capabilities after years of neglect. It is projected that 23 of NATO’s now 32 members will meet or exceed the 2% of GDP target this year. Germany is spending more that it has since the end of the Cold War. And those countries that are not meeting those goals like Canada and Italy will come under criticism at the summit.

In addition to Russia and Ukraine, the summit will be addressing concerns about an increasingly aggressive China, rising tensions in the Middle East with the Israel-Hamas conflict in Gaza, and new cooperation between Russia and North Korea. Another key issue is the uncertain outcome of the US Presidential election, as the US remains NATO’s most powerful member.

President Biden will have the dual task of uniting NATO in support of Ukraine and uniting his own Democratic party behind his presidential candidacy. Another political message Biden is likely to send is that NATO members have indeed ratcheted up military spending on his watch, undercutting Trump’s depiction of European allies as “freeloaders”. The summit is also occurring at a time when Europe is facing its own political issues with far-right populism, particularly in France and Hungary and a new labor government in the UK.

Tom Bailey, Head of Research at HANetf, issuer of the Future of Defence UCITS ETF (NATO):

As we look forward to the upcoming NATO summit, recent statistics highlight a significant milestone in the alliance’s collective defence commitments. A record 23 NATO countries, out of a now-expanded membership of 32, are on track to achieve the 2% of GDP target for defence spending in 2024. This achievement is particularly noteworthy as it represents a nearly fourfold increase from 2021 when only six countries met this goal.

The impact of geopolitical developments, such as Russia’s invasion of Ukraine in 2022, has been profound. The number of countries meeting the 2% target rose from seven in 2022 to ten in 2023. This trend underscores a renewed urgency among NATO members to bolster their defence capabilities, with Europe and Canada collectively increasing defence spending by 18%, the largest surge in decades.

Notably, Germany has committed 71.8 billion euros ($76.8 billion) to defence this year, marking its first achievement of the 2% target since the early 1990s. Poland leads the alliance in defence spending at 4.12% of GDP, signaling a robust dedication to national and collective security.

For investors, this unprecedented rise in defence spending highlights a sector with increasing relevance. The defence industry is likely to experience growth as NATO members enhance their military capabilities, presenting potential opportunities for investment. As the NATO summit unfolds, this area will be one to watch closely.

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